Idaho’s Investment Tax Credit Explained

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Idaho’s most popular tax incentive is the three percent investment tax credit.  Businesses that purchase qualifying new equipment can earn an income tax credit.  The credit can offset up to half of a company’s state income tax liability and can be carried forward up to 14 years.

Dan John manages tax policy at the Idaho State Tax Commission.  “So, if you have $100 of computed tax liability, even if you have $1,000 worth of credit, you could only claim $50 of the credit against that liability.”

Whatever is left over can be used for the next 14 years.  Plus, this credit isn’t a one-time deal.  John says companies that are ‘capital intensive’, like manufacturers, use this credit all the time on qualified purchases.Qualifying is the key word.  The state lists things like machinery, equipment, elevators, escalators, greenhouses, milking barns and research facilities as qualifying purchases.  Things that don’t qualify for the three percent tax credit include apartment buildings, used property and horses.

Lane Packwood administers the economic development arm of the Idaho Department of Commerce.  He says most businesses choose the investment tax credit because it applies to capital investments for any business, large and small, new or old.

The state estimates it will give up more than $33 million in revenue for investment tax credits in 2011.  Here’s a look at the numbers since 2007.  Keep in mind, 2010, 2011 and 2012 are projections.

Source: Division of Financial Management

“When the state’s giving what is viewed as an incentive, they’re not doing it just to give an incentive,” says John.  “What they’re really hoping to do is that businesses will engage in activity, that in the long-term, is good for the state, either with more employees or more investment into the state.”

Still, John says it’s difficult to quantify the benefit of the three percent incentive.  “When we put together numbers, we put together numbers of what we know, that’s what is on tax returns.  We don’t know all of the upsides of the tax credits and things.”

John says when a company buys a new piece of equipment, even if it comes with a tax credit, the person selling the equipment will make a profit and will pay income tax on that profit.